Monday, October 4, 2021

Morning Note: Q4 is largely about political calculation...

As we enter what is typically the best quarter for equities, market actors worry over the outcomes of what are, at this juncture, essentially little more than political calculations.

Will the majority party in the U.S. satisfy its own dueling factions and ultimately deliver the spending oomph sufficient to offset whatever tax increases come with it that'll keep the bulls engaged?

Will the Fed lose its leader, as he -- as well as the institution itself (amid trading improprieties among some of its governors) -- has lost some serious luster of late?

Will China's leadership sufficiently kick its property bubble can into next year?

Will the new leadership in Europe and Japan, respectively, deliver the rhetoric -- make the do-whatever-it-takes promises -- markets desire?

Now, for sure, there's the stuff that really matters (read inflation, interest rates, the dollar, earnings, the various asset bubbles themselves and, indeed, the longer-term impacts of short-term political decisions); i.e., the stuff patient, experienced, long-term oriented investors build their investment strategies around. The rest is about gauging our short-term expectations along the way.

Aside from today (not much going on in terms of data releases), this week delivers some key U.S. data to parse:

Tomorrow: Trade Balance, ISM Services Index, Composite PMI

Wednesday: ADP Employment Report, Mortgage Apps, Crude Oil Inventories

Thursday: Weekly Jobless Claims, Natural Gas Inventories

Friday: Employment Situation Report 

With Chinese markets on holiday, Asian equities were mixed overnight; those that were open roughly split the difference between red and green on the session.

Europe's leaning green this morning, with 14 of the 19 bourses we follow trading up, as I type.

U.S. stocks, tech in particular, are struggling to start the day: Dow down 9 points (-0.03%), SP500 down 0.59%, SP500 Equal Weight up 0.07%, Nasdaq 100 down 1.53%, Nasdaq Comp down 1.46%, Russell 2000 down 0.55%.

The VIX sits at 22.63, up 7.00%.

Oil futures are up 2.61%, gold's down 0.23%, silver's up 0.24%, copper futures are up 2.42% and the ag complex is up 0.46%.

The 10-year treasury is down (yield up) and the dollar is down 0.36%.

Led by uranium miners, energy stocks, Nokia, metals miners and base metals futures -- but dragged by solar stocks, tech stocks, AMD, wind stocks and MP (rare earth miner) -- our core portfolio is up 0.11% to start the session.

Like we keep saying, the Fed (long-term) simply can't keep markets elevated without letting the dollar go. A reality that is central to our long-term thesis, and present overall strategy:

"In general, Central Banks can control either their domestic yield curves or their currency valuations, but not both at the same time."  --Hari Krishnan

Have a great day!

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